European leaders agree to use bailout fund to help banks, contain crisis

BRUSSELS — By the end of a vital two-day summit here, European diplomacy had played out like soccer, with Spain and Italy — the two nations headed to the Euro 2012 finals — emerging victorious and the Germans returning home in shock.
After 14 hours of talks, Berlin unexpectedly agreed to concessions clearing the way for a deal that could help both Madrid and Rome in their desperate efforts to stave off economic collapse.
Although the euro crisis is in its third year, you may still be wondering how European governments got into this sticky situation in the first place. If news of bailouts leaves you confused, this primer is for you.
Click Here to View Full Graphic Story
Although the euro crisis is in its third year, you may still be wondering how European governments got into this sticky situation in the first place. If news of bailouts leaves you confused, this primer is for you.

In Burma, a brutal civil war grinds on far from the capital

In Burma, a brutal civil war grinds on far from the capital
In the resource-rich hills of northern Burma, government forces clash with Kachin rebels.

For Mexican voters beset by fear, few good choices

For Mexican voters beset by fear, few good choices
Voters in Tampico have their lives on the line in Mexico’s presidential election. The vote, many citizens say, is the worst kind of choice, between candidates and parties they don’t especially like or trust.

Historic handshakes

Historic handshakes
Throughout history, some handshakes have become a symbol of peace and hope.
The agreement, while conditional on the creation of a regulatory body, addressed the core of the questions facing Europe: Who will cover the tab for its 2½-year-old debt crisis, and how?
Under the terms of the deal, troubled euro-zone countries would have more options for aid, including using a pool of European rescue funds to directly recapitalize ailing banks. That, in turn, would spare governments the humiliation of having to ask for aid themselves to channel to domestic banks, sidestepping the kind of intrusive financial inspections imposed on Greece, Ireland and Portugal.
The change could ultimately halt a toxic cycle that, while holding countries accountable for their banks’ errors, also pushed indebted nations deeper into the red as they took on ever more rescue cash to bail out their financial institutions.
The agreement in Europe delighted global investors, who sent stocks soaring. In the United States, the Standard & Poor’s 500-stock index rose 2.5 percent Friday, the sharpest increase since December, and the Dow Jones industrial average was up 2.2 percent. The strong performance capped the stock market’s best June since 1999. In Europe, investors were even more exuberant, with the German DAX and the Stoxx index of major euro-zone companies both jumping more than 4 percent.
The plan is to kick in only after a regional supervisor, based at the European Central Bank, is set up to regulate banks in the 17-nation euro zone — itself a major step that leaders said they would sign off on by the end of the year.
In addition, leaders agreed that countries could obtain bailout funds to buy up their government bonds on open markets — and thus bring down dangerously high borrowing costs — with fewer conditions attached.
‘Unthinkable’ decisions
The compromise reached here Friday fueled new optimism about the region’s ability to finally break the diplomatic impasses that have made its debt crisis as much political as economic.
“We have taken decisions that were unthinkable just some months ago,” European Commission President Jose Manuel Barroso said.
The breakthrough also signaled a reshaping of Europe’s political landscape.
German Chancellor Angela Merkel, the frugal East German physicist, had laid down the rules for coping with the crisis through her alliance with Nicolas Sarkozy when he was France’s president. But with his successor, the socialist Francois Hollande, leaning more toward the Italian and Spanish leaders’ vision of crisis management, a new three-against-one dynamic took hold here.
Backed by the French, Spanish Prime Minister Mariano Rajoy, a conservative who is protective of Spanish pride, and Italian Prime Minister Mario Monti, a sober and respected former E.U. official, resorted to brinkmanship. Both leaders vowed to block a $150 billion growth plan, seen as a centerpiece of the forum, if they did not win major concessions.Against their united front, Merkel blinked.
“The discussions were hard and tense,” Monti said Friday. “But it was worth the effort.”
Hollande, meanwhile, reiterated his support. “If Italy and Spain applied pressure during the night,” he said, “it was so the whole euro zone would come out stronger.”
Although the euro crisis is in its third year, you may still be wondering how European governments got into this sticky situation in the first place. If news of bailouts leaves you confused, this primer is for you.
Click Here to View Full Graphic Story
Although the euro crisis is in its third year, you may still be wondering how European governments got into this sticky situation in the first place. If news of bailouts leaves you confused, this primer is for you.

In Burma, a brutal civil war grinds on far from the capital

In Burma, a brutal civil war grinds on far from the capital
In the resource-rich hills of northern Burma, government forces clash with Kachin rebels.

For Mexican voters beset by fear, few good choices

For Mexican voters beset by fear, few good choices
Voters in Tampico have their lives on the line in Mexico’s presidential election. The vote, many citizens say, is the worst kind of choice, between candidates and parties they don’t especially like or trust.

Historic handshakes

Historic handshakes
Throughout history, some handshakes have become a symbol of peace and hope.
He also hinted that Merkel would continue to face a tough new bloc against the conservative German approach to the crisis.
“This was not France and Germany arriving with a solution, like in the past,” Hollande said Friday, according to a translation by Reuters. “It was France and Germany, along with others, reaching a solution. That’s why it took so long and went so far.”
The goals scored here by the Spanish and Italians could buy them more time to make tough economic reforms, boosting investor confidence. But they do not guarantee that Spain and Italy can avoid a deeper crisis that could yet shatter the euro currency union, and Europe will probably still need to dedicate far more cash than it already has to prop up the region’s ailing economies.
Merkel’s risks
Merkel and European Central Bank chief Mario Draghi warned Friday that the new flexibility governing Europe’s rescue fund should not be seen as a blank check, with Draghi saying access to funds would still come with “strict conditionality.”
Merkel’s decision to back down carries domestic political risks, with the German public growing weary of its indebted neighbors’ woes. She survived a key test late Friday when the German parliament approved Europe’s new budget-discipline pact as well as the euro zone’s new, permanent $623 billion rescue fund.
Earlier in the day, though, her home media savaged her: “Italy and Spain broke the will of the iron chancellor by out-negotiating her,” Germany’s Der Spiegel declared on its Web site Friday.
Still, few appear to think the German chancellor will easily bend on other, more major issues yet to be worked out. In the fight for bigger fixes to the euro — such as collective debt shared by the 17 nations of the euro zone — Merkel will probably be less flexible, demanding that her neighbors cede more power to a central authority here in Brussels and make more spending cuts in exchange for the promise of further German aid.
The agreement that Rajoy and Monti secured, allowing European rescue funds to be used to directly recapitalize banks, rather than just national governments, remains conditional on the creation of the regional banking supervisor, still several months away.
Theoretically, that means that Spain, which has already requested a bailout of as much as $125 billion to aid its troubled banks, would still need to run its initial rescue through the national government. But the government could potentially step down by the end of the year, allowing the banks to directly obtain aid and potentially bolster market confidence in the government’s ability to service its debt. In another key concession, the Germans agreed to drop a requirement giving the European rescue fund, to which Germany is the largest donor, preference over private investors in Spanish government debt in the event of a default.
Monti also hailed a concession allowing countries to tap bailout funds to buy government bonds with fewer strings attached. But the wording of the agreement remained vague, and Merkel warned Friday that there would still be conditions, with countries expected to adhere to E.U. budget targets and European authorities reviewing their compliance.
The deal suggested that Italy was already pondering such a move, which would make it the sixth nation in Europe to request some form of assistance. But Monti insisted Friday that Rome was not yet considering a request.
Leaders were also set to debate more radical steps toward European integration at the summit, including the establishment of a banking union and a European Treasury that could hold sway over national budgets. But discussions on the longer-term fixes were postponed until October, setting up a pivotal new crunch time when Merkel will face the tough political challenge of securing a path forward for Europe that the German public can live with.
Herman Van Rompuy, head of the European Council, a body made up of the region’s leaders, said Friday that the October report would offer “a specific and time-bound road map for the achievement of a genuine economic and monetary union.”
Edward Cody in Paris and Alan Sipress in Washington contributed to this report.

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10:05 AM GMT+0900
"The goals scored here by the Spanish and Italians could buy them more time to make tough economic reforms"

In other words the effort to delay the inevitable was acheived, which in some ways could be modeled as something which is somehow inversly proportional to the distance from the thing that is to be delayed.

Question is: does the remaining distance actually decrease in propotion to the time gained ?

For I beleive that it actually does. Which as a result suggests that Italy and Spain have less room to operate than ever before. That is,unless they themselves contract !

Modeling ! You can learn a lot from it. 
8:38 AM GMT+0900
There isn't strong political- economic union but money union in EU.
Is it fair to take German peoples' money to aid the rest of countries to buy cheaper goods from authoritarian china, without own efforts to earn money.
It is mechanism to foster lazy.
What result it will be finally?
New crisis outbreaks at near future.
If EU countries want to aviod the bad cycle, a strong political Union pact must be agreed.
Otherwise, with financial problem like Greece, they will threaten to scurry away Union. 
6:55 AM GMT+0900
Out of the 10 EU countries that do not use the Euro only two have an opt out from participaton, the UK and Denmark. All other non euro EU states are obliged to join the euro once certain conditions are met. Denmark has actually joined the ERM II in 2011 which is a pre-condition for joining the euro, this was because of the 2008 financial crisis. Assuming the euro will get better then eventually one must assume that the EU non euro countries will meet the conditions set and join the Euro. The UK, with an opt out, will be sitting on the sidelines, and will possibly be the only EU country not using the euro. Leaving the UK in an impossible position.
8:15 AM GMT+0900
And yet Iceland wants to join the euro but needs to join the EU first!
j. von hettlingen
6:53 AM GMT+0900
Despite France's effort to throw his weight behind Italy and Spain, Germany isn't the only country within the eurozone that is reluctant to continue bailing out debt-laden countries in the south. Angela Merket has support from the north - Austria, Finland and the Netherlands as well. Although the eurozone leaders agreed to begin implementing the decisions by 9 July, it could take until the end of the year before the new money becomes available. The bailout fund - the European Financial Stability Facility - will not only be able to lend directly to banks, it will also be used to buy bonds of countries like Italy and Spain whose borrowing costs have soared. By doing so these countries will not have to apply for a formal Greek-style bailout.
7:07 AM GMT+0900
So true - the 500 billion euros in the not-yet-set-up-fund will be able to prop up banks directly. Of course, the European taxpayer will be the proud owner of flaky Toxic Derivitives used as collateral, 500 billion euros probably isn't enough, the Irish will want a new deal, and German involvement will be made moot by the German Constitutional Court. But, what the hey, ANYTHING to calm the markets!
6:09 AM GMT+0900
Bailing out the banks by enriching their assets side of the balance sheets will not help out the businesses that need capital as the banks will only loan out to Jesus, maybe. That's what happened and is happening here. Europe will not be solved as a copy of the U.S. because their enmity is too recent and their cultures too wide apart. It is only a matter of time for the Euro to go out the way the Roman coins did....
6:13 AM GMT+0900
Sometimes brain originated common sense from living, reading, and learning bests the wishful heart strings and academic what ifs of couch siting TV watching time.
7:55 AM GMT+0900
Myonecent, that was inscrutable.
8:51 AM GMT+0900
@DE: What it means is that(a) the recent history of Europe, (b) coupled to their liberal work and retirement benefits, (c) and the unwillingness of their banks after the bailout to readily loan money, (d) and their need to float more and more high interest paying bonds thus tying up their children's wealth, is not a good situation and it will probably get worse. We should be aware and not pursue the same fate.
Ryszard Ewiak
5:56 AM GMT+0900
This does not mean the end of the crisis. What will be the end result? Bible says: "And [the king of the north] will go back (to) his land with great wealth [1945]; and his heart (will be) against the holy covenant [state atheism]; and will act [this means activity in the international arena]; and turned back to his own land [1991-1993. The collapse of the Soviet Union and the Warsaw Pact. Russian troops returned to their country]. At the appointed time [he] will return back." (Daniel 11:28, 29a) Now Russia will return back. It means the financial and geopolitical earthquake; the disintegration not only of the euro area, but also of the European Union and NATO. Many countries of the former Eastern bloc will return to the Russian sphere of influence. Russian troops will be stationed here again. This will be the last sign before the global nuclear war. (Daniel 11:29b, 30a; Numbers 24:23, 24; Matthew 24:7; Revelation 6:4)

After this war, the nations will put hope in the world government. (Daniel 11:31; Revelation 13:1, 2, 7)
5:57 AM GMT+0900
Does this mean the Catholics will go away?
Ryszard Ewiak
6:06 AM GMT+0900
The scenario resulting from the analysis of the Bible:

Daniel 11:29b, 30a = Matthew 24:7 = The Third World War.

It will be a nuclear war. (Revelation 6:4) "A great sword" = nuclear sword.

Soon after will be famine, caused by drought. (Revelation 6:5, 6)

This will be "the beginning of birth pains." (Mark 13:8)

Daniel 11:30b - The king of the north against the holy covenant. The persecution of Christian minorities. (Compare Matthew 24:9)

Daniel 11:31-35 = The great tribulation of the small Christian churches. (Matthew 24:15, 21, 22; Daniel 7:25; Revelation 6:9-11; 11:2, 7; 13:7)

"The abomination of desolation"= "The beast"= The future world government.
The king of the south= The Anglo-American Alliance. (Daniel 7:8, 21; 8:10-12) The United Kingdom and the United States will strengthen their cooperation. (Revelation 13:11)

Daniel 11:36-39 - Russia before World War IV. Dictatorship and militarism.

Daniel 11:40-43 = The Fourth World War. (Matthew 24:29; Luke 21:25; Revelation 6:12; 13:3; Isaiah 5:26-30; Daniel 7:11; Ezekiel 32:2-16; 39:23-29; Habakkuk 1:5-17; Zephaniah 1:14-18; Joel 2:1-11)

Revelation 17:16 = "The judgment upon the great harlot who sits on many waters" = The pastors of large churches who betrayed Christ. (James 4:4)

Ezekiel 43:11 = The Third Temple, also known as Ezekiel's Temple. (Ezekiel 37:24-28; Romans 11:25-32; Hosea 3:5; 5:15)
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5:34 AM GMT+0900
The Germans should only agree to hand out loans if the recipients are willing to provide land as collateral. If they end up defaulting, I doubt the Germans will be losing any sleep. In fact, I'm sure the Germans would be eager to extend loans to France and Poland.
5:53 AM GMT+0900
That is really good!. Now, the problem is to get the pesky bankrupt uneducated, unwashed, unwanted Catholics out of the place. They are like fleas, and breed and breed and....
7:09 AM GMT+0900
Funny comment, Executor.
5:09 AM GMT+0900
I have a solution, yes Italy and Spain get to avoid embarassment , but in return Germany gets the following.
1. Spain and Italy top Football players to Germany
2. Germany gets to be in the Euro Finals for the next 10 years.

Greece will have to part with an Island or two.
5:15 AM GMT+0900
Better yet: Spain plays Germany at the finals.
5:55 AM GMT+0900
Why not just have the German flag fly over Spain, and then declare that Spain is no longer Catholic!.
8:07 AM GMT+0900
No, I like Muddy's idea better, Alfie, besides, Catholics make such kinder, gentler Christians than most of the younger denominations. They don't have that messianic zeal that tends to get so many Christian sects in so much trouble. I guess they got it out their system during the Crusades.
5:02 AM GMT+0900
It's rather alarming to see the Spanish, Italians, and French dragging the Germans into the ditch with them.

When the time comes, who will bail out the Germans?
5:47 AM GMT+0900
When the time comes, who will bail out the USA?
5:56 AM GMT+0900
It will certainly not be the Vatican. A hundred nations and a thousand years of failure is their legacy.
7:08 AM GMT+0900
It won't be the Germans. That's for sure.
4:54 AM GMT+0900
Merkel didn't actually blink. It was obvious she knew what was coming, because it was the most expedient thing she could do. She had to do it.

And it's about time the Mediterranean nations join and assert their voices. We're already looking at the making of a new European Union.
4:27 AM GMT+0900
Bravo monsieur Hollande, fantastico senor Rajoy, bene signore Monti!
Go on to blackmail Angela, wring from her one concession after the other, make clear that she ist is a victim of your demands and show on what side you are standing (take as one example Mr. Alexis Tsiprasof of the left greek party who announced after Greek election in may that he in power wouldn't pay back any € of the 130 billion € rescue package).

German voters must known whom to vote in the next German election in 2013.
Thanks very much!

irony off
3:54 AM GMT+0900
Has anyone been informed concerning the bailout conditions towards the banks? In the case that German (and Dutch and Finnish etc ) taxpayers are supposed to grant money without some sort of security in return, it's a democratic scandal. Up in the North we have a much harder climate (in every respect) compared to the Mediterrainean area. Nevertheless, all the European regional funds are in reality all directed towards supporting Latin countries, "being excused" by not having working fiscal systems. Do Greece, Italy, Portugal and other countries, spending more than the earn, recognise the sacrifice done by the taxpayers in the Northern economies?

Sweden voted NO to join the Euro. Guess if we are happy for that?
4:10 AM GMT+0900
Trollheim: Just vague policy statements so far - there's a good chance "the markets' will dismiss this as more meaningless blather from politicians...
4:26 AM GMT+0900
Trollheim, I do agree with your point but there is an extra dimension to this. The single currency was always going to lead to this end. All currency unions have wealth transfers from the more successful parts to the parts which are in need. It is an inevitable situation, especially in one as diverse as the Euro. The real scandal is the fact that this was denied by the politicians at the start. In fact anyone who pointed this fact out was treated as pariah and slandered.
The South can't survive on the same currency as the North. They are overvalued and for years were on the wrong interest rate. Although I recognise they are not blameless in their spending habits, to be truthful, neither is the North or indeed outsiders such as Britain
4:50 AM GMT+0900
Trollheim: Hope this helps - from the BBC website:

".......the leaders say that when the ESM takes over the Spanish bailout programme from the EFSF, that money will not get "seniority status" over private investors - it will have to stand in the same line to get its money as all the country's private creditors.

That is important, too. The fact that ESM lending would take seniority was another big downside to the recapitalisation programme in the eyes of investors. But again, the way the statement is written it seems only to apply to Spain.

There is no indication that the European Central Bank, for example, will be forced to take losses on the Greek, Spanish, or Portuguese government bonds it has purchased, in the event that those countries end up having their sovereign debt restructured or partly written off.

Finally, the leaders say they will use "the existing EFSF/ESM instruments in a flexible and efficient manner in order to stabilise markets" for members of the eurozone who are abiding by all their various eurozone commitments. And they "welcome that the ECB has agreed to serve as an agent to the EFSF/ESM in conducting market operations in an effective and efficient manner".

This has some in the financial markets convinced that the ECB is about to offer the ESM a banking license, so it could theoretically borrow an almost unlimited amount to buy Italian or Spanish sovereign debt in the markets, and so put a cap on their cost of borrowing.

The ESM is backed by government guarantees worth up to E500bn. Compare that to the E2.7 trillion in outstanding Italian and Spanish sovereign debt and you see why the financial markets might well not take ESM purchases very seriously if they are not backed by the ECB." 
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3:28 AM GMT+0900
"intellectual socialist Francois Hollande"

What? Hahahahaha.

I feel for Merkel. The Italians and Spanish basically put a gun to her head by threatening to block everything. Reckless brinkmanship. And then afterwards they gloated about their victory-- talk about stupid. They just angered most of Germany-- good luck getting any cooperation or money from them in the future.
3:29 AM GMT+0900
They call this "solidarity" apparently.
4:00 AM GMT+0900
5:59 AM GMT+0900
I have a question. Is there a successful Catholic nation in the world? Please name one.
Sorry, it is a Catholic thing, not R v D. The Catholics are screwing up all of government so they can conquer the US just like they have done every nation south of the US. The method of divide and conquer has worked for 500 years. The Catholics have now conquered everything south of the US border. Now, they have California. Catholics do not compromise, they do not negotiate. Calif. has been in deadlock for 20 years. The US govt is in deadlock for 5 years. (NO BUDGET) In a thousand years there has not been a successful single religion nation. (Catholic ). The Constitution is secular (no religion). Keep it that way.

The bible does not trump the Constitution. The Vatican does not rule the white house. There are more Catholic Ds, than Rs. Vote all Catholics out to restore the Constitution.

Vote every Catholic out both R and D and restore the Constitution.  
2:55 AM GMT+0900
I know this quote mat seem off topic. But we are talking about bank bailouts here lets not forget. And we are not being told the full story. I read this quote in a different comments section, and just feel we should all be thinking of these words.

Between 1799 and 1802, Thomas Jefferson, stated, on more than one occasion that: “’I
believe that banking institutions are more dangerous to our liberties than standing armies.
If the American People ever allow the (Private) banks to control the issuance of their
currency, first by inflation and then by deflation, the banks and corporations that will
grow up around them will deprive the people of all property, until their children wake up
homeless on the continent their fathers conquered. The issuing power should be taken
from the banks and restored to Congress and the people to whom it properly
belongs….Single acts of tyranny may be ascribed to the accidental opinion of a day, but a
series of oppressions, begun at a distinguished period, unalterable through every change
of ministers, too plainly prove a deliberate, systematic plan of reducing us to slavery.” 
3:04 AM GMT+0900
Jefferson was known to be a free thinker with opinions that American liberals today have difficulty accepting. A fascinating gentleman, but I’m sure he would disagree with re-capitalizing banks that gambled recklessly with depositors’ savings. He would be inclined to let them fail.
3:15 AM GMT+0900
I think we must let them fail. Scary I know but how much cash are we going to let ourselves be blackmailed out of? Don't know if you have been reading about the libor scandal, but things seem to be even more corrupt than was thought
4:07 AM GMT+0900
Uk: Off-topic, I know, but the best analysis of the libor scandal I found was on the BBC website:
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2:37 AM GMT+0900
stop spending what you do not have.....
2:43 AM GMT+0900
Excellent advice - Ben Franklin would agree too! And if you are a bank, stop making leveraged "bets" on a 60 to 1 basis.
3:19 AM GMT+0900
Oh, yes indeedy!

Don't go to college until you've saved enough working at low wages to pay for it!

Don't buy a house on a mortgage!

Don't build roads and ports until you've save up the tax receipts for long enough to pay for them!

Throw 20% of your workers out into the streets, so loss of their demand causes another 10% to lose their jobs, and after government revenues from taxes fall 30% you can have another round of layoffs in a lovely spiral down to Depression!

In other words, the economics of households and nations is a bit more complicated than rgw1946 recognizes.

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